A girl’s view of sustainability and social media

The Green Power of Shrinking Wallets

It is happening finally. According to an article in the San Francisco Chronicle, ‘Dollar’s Fall Forces New Standard of Frugality‘ amidst Americans. I could not be more pleased. ‘Squeezed by food and energy prices, tight credit, stagnant incomes and falling home and stock values, many consumers are throttling back.’

‘Ins and Outs of New Economic Order’

Source: Chronicle research, BudgetSavvyMag.com

What puzzles me however, are the responses from the economists:

‘We are going back to the good old days of living within our means . . . This is not the end of the world. It’s not Armageddon. It doesn’t mean we’re going to have to live in a cave or a hut or an RV. The areas of retrenchment are in areas we can do without, such as cutting out that extra vacation.’ David Rosenberg chief North American economist for Merrill Lynch

‘We are seeing the first pangs of a new economic structure. The next year or three will be about the transition to a new equilibrium. Consumption by households will grow more slowly than their incomes, which is the exact opposite of the last 25 years when consumption grew faster than incomes.’ Neal Soss, chief economist for Credit Suisse First Boston

‘Standards of consumption have to fall. The burden really falls on households.’ Ronald McKinnon, economist at Stanford University

‘The world has become multipolar. Our dominance will decline.’ Barry Eichengren, international economics expert at UC Berkeley

‘We should not look at today’s rising of credit standards as being bad. We’re returning to a more realistic credit paradigm after a period of excess. What people are comparing it to is something that was outlandishly unrealistic.’ Catherine Mann, professor of international economics and finance at Brandeis Business School

‘I see no reason that we can’t continue to enjoy productivity gains and double the standard of living in the next 30 or 40 years. I still sense that there’s lots of excitement for things like solving our clean echnology problem. I don’t see a country that’s down on its luck and out of ideas.’ Joen Shoven, director of the Stanford Institute for Economic Policy Research

You would think these new behaviors from the American people would be the perfect occasion for a paradigm shift in the economics narrative, but no . . .

Being an optimist, I am choosing to retain the good news. People do respond to limits. And in its own twisted way, the market system does work, including for climate protection.

The credit crunch and average American’s savings level (about half of one-percent of income) comes at a very troubling time; if there ever was a good time for a credit meltdown.

Soon Americans will choose to, or be regulated to spend money we do not have to retrofit our homes, purchase energy efficient cars. Where will we find the line of creidt, loan or capital outlay to make those needed changes in our lifves.

John, lack of credit is indeed a problem for individual green investments. Jeff Huggins proposed a solution a few days ago:

“A great “green energy” company, associated with making homes more efficient, should not only be able to pitch and install the necessary equipment, but should also be able to finance the whole thing, i.e., provide the equipment and installation for free in exchange for a portion of the savings stream.”

Retrofitting of existing infrastructures, including residential homes, should not be financed by individuals. This is what taxes are for. So far taxes have been used to build and maintain traditional infrastructures such as roads, railroads, bridges, schools, etc . . . We need to revise our notion of infrastructure to make room for climate protection. This means different policy choices, away from counterproductive subsidies, and wars . . . and a reallocation of national resources. Leading into the creation of green collar jobs, energy efficient housing and commercial buildings, etc.

There is also room for some private, creative financing ventures. Lots is happening in that area with solar installation, including community choice aggregation initiatives. A LOT more work needs to be done there.

“Retrofitting of existing infrastructures, including residential homes, should not be financed by individuals. This is what taxes are for.”

One could imagine government subsidies on certain private investments. The people who have paid for it by themselves before such an arrangement is made will really hate that though. I think it’s very important to consider people’s sense of fairness in this regard.

“Retrofitting of existing infrastructures, including residential homes, should not be financed by individuals. This is what taxes are for.”

I agree with Meryn on this one. It would be nice to offer owners incentives to do more retrofitting of their homes, and that has been widely done in different places, sometimes through private companies, including utility companies. If an owner can see the benefits of improving energy efficiency, for example, then he/she should go ahead and do what needs to be done. The benefit to society would be harder to measure.

However, much more stringent demands for energy and other efficiencies could be placed on future home construction.

As for Americans making all these cutbacks, we shall see. If they do, it is going to have a considerable impact on economies elsewhere, especially in China. In turn the Chinese, if they end up selling us much less stuff, might well also be reluctant to continue to loan us overspent Americans money.

Looking at this list of changes, most of them look not just good to me, but also long overdue. Americans have been living beyond their means for a very long time now. At the same time we’ve had an environment in which inflation has remained mostly at bay, so young folks hardly know what it is. Those who remember the 1970s know otherwise.

But it is also easy to look at this list and understand why economists would be concerned. For examples,

1. More cooking at home is going to affect local restaurants, their suppliers, the wine trade, etc.

2. Fixing the old car will eat into new car sales, affecting local dealers, then producers, their suppliers, etc.

We could go on, but the point is a simple one. If people really do make these changes on a large scale, which would probably be good for all of us in the long run, then there will be an adjustment period that could hurt a lot of folks. Just as virtuous circles can carry us upward for a long time, so vicious circles can take us down just as thoroughly.

Anyway, as you suggested, markets do work, at least to a reasonable extent, and we are seeing that happen. For those concerned with global warming, contraction and conservation will be helpful. Underneath these changes, I think, are very real changes in the production of crude oil, then natural gas, and finally coal. Unless many petroleum geologists are wrong about forthcoming supplies of crude oil, and many economists are wrong about the rising future demand for crude oil, it looks from here like the price of that commodity, to which all modern societies are addicted to one extent or another, has nowhere to go but up.

Here is a quote from Dan Burden that I think you and many of your readers might like:

“You can either be a passenger on the train to change, or get up in the engine helping stoke the fire, taking in the gusty winds of change feeling the sting and smell of hot cinders burning the hair off the nape of your neck.”

As a typical academic, I have mostly avoided such things, but your blog is helping lots of folks learn more about just how necessary changes are and how soon they need to occur in order to be useful. Keep up the good work!

Agree that the transitioning is going to be rough, especially on the less financially well off. This is where smart policy can step in to ease things a bit. Only think of all the money spent on Iraq, and what could be done with those trillions, to finance some of the changes discussed here! Including the creation of a whole new economy of green jobs.

Thanks Edouard, for a great example of what I call creative green financing. My husband is working on similar deals involving solar installations for sewage treatment plants in Hawaii. The energy savings will offset the monthly payments for the loan, exactly as in your example.

ilex, when it comes to your last point, “We need to redefine what is valuable”, that’s correct in some important senses. But, I would put it slighly differently. We need to gain a better understanding of what is genuinely valuable, and why. In other words, a substantial part of “what is valuable” is not merely subject to “redefinition” in any way anyone chooses. Most genuine sources of value have very deep roots, most of which predate the word “value” itself. Also, of course, people have been pointing out key sources of genuine value for thousands of years. (Sometimes, humans are not very good listeners.) But, in the sense that you mean, I agree with you.

It’s not actually a very hard project to do. Communicating it, and sharing it, is harder (in some ways) than figuring it out.

Marguerite, you’ve written about this before, and many of us disagreed. Unfortunately, those who feel this slowdown the most will be those who can afford it the least. I read this post yesterday, and it troubled me, but I did not comment.

Then I was reminded of it twice since.

First, I drove my babysitter to the bus stop yesterday afternoon because her car is in the shop . She commutes 30 miles each way to watch our kids. (Don’t get me started, she ignored my advice to buy a fixer-upper in the next town over in favor of a newer townhouse 30 miles away).

Gas prices are so high now, she is really feeling it. In the past I gave her a stipend to cover the additional gas but now I can no longer afford to do that. She said there were so many people waiting to catch the bus at 6 a.m. that the bus left a huge crowd of people behind. Imagine that! All those cars that will be on the road because we aren’t properly managing / funding our public transportation initiatives! And this in the Washington Metro Area Mass Transit System – one of the best in the country!

This afternoon I drove past the local high school. Scores of kids were heading out to their cars – or their parents’ cars – Jaguars, Volvos, Lexuses, and other luxury cars. These kids could take the public transportation provided (school bus) – or walk – but instead they are driving – emitting more carbon with nary a care in the world. Who says the young are green?

So there we have it…the working class are suffering because we’re not funding sufficient public transport, and the rich kids are turning their noses up at the available public transport open to them (school bus) because Mommy and Daddy still view loaning out cars as a fun privilege rather than a contributor to global warming.

Then eh bu tbecome to rbdn it tfeose wIUnfortunthe economic troubles will affect those who can afford s aht the ti

“I must add that commenting in Marguerite’s blog is sometimes an intimidating thing, being chock-full of scholars and philosophers as it is.”

I hope the comments keep coming from all sides. A story like Lynn’s also gives so much insight in what’s happening.
On the other hand it’s a good thing that smart people can know their arguments will be taken seriously here.

“We need to redefine what is valuable.”
You don’t need to be a philosopher to understand the truth. :)

I could add that we don’t really have to define what is valuable, but that everyone needs to find out for his or her self what he or she truly values. Ask “why” five times for each thing that you want, then you’re probably at the core. That in itself is a philosophical exercise.

Jeff, on the issue of communication, I think that providing vivid stories of another way of living is key. I think those stories are already being told everywhere, including by pioneers here on this blog.

Lynn, thanks for caring so much. I feel I need to clarify. Far from me the idea of ignoring the plight of the less fortunate ones. It is a well known fact that people of lesser means, both here in America and all over the world, are the ones who are going to suffer most from the current imbalance in our global ecosystem. Rising gas prices, food and water shortages are the beginning of what’s to come.

This is why I am such a strong advocate of setting up policies to mitigate such effects, including in the example cited here, better transportation alternatives, as in more bus routes and more frequent ones.

Still, I cannot support business as usual in the gas consumption department. This may be a hard reality to face, but a reality still.

Also, I will get you started on your nanny’s story and her choice of a far away place of living. You are touching upon the issue of education, and the need for mainstream America to understand the consequences of some fundamental choices such as where they live.

I may sound harsh, but I do believe that people, rich and poor, respond to limits and necessity. The issue you are bringing up is the one of fairness.

The planet crisis facing us demands immediate, drastic changes, and change IS painful.

Gosh, I sure hope this blog is not ‘intimidating’ people, for that is definitely not the intent. Quite the opposite. It is my belief that the best discussions include all types of contributions. The danger of staying too much in the head, is that it looses the heart.

So, Ilex, please do stay with us, and bring some of your friends along, and stir the conversation more down to the ground, where things grow!

No worries, Madame Marguerite, I love your blog and I’m not going anywhere. The intimidation I feel comes from your most impressive peanut gallery– but it won’t prevent me from now and again putting in my 0.02. And I’ll certainly do my best to get the philosophers in here to do some digging in the real dirt.

You’ll all be glad to know that President Bush feels your pain. In a news conference today he said, among other things, that “…the American people, they got to understand that here in the White House, we are concerned about high gasoline prices, we’re concerned about high food prices, we’re concerned about people staying in their homes and we’re concerned about student loans…”

You are so right, though I don’t think W actually mentioned that today at his news conference. A new book by Stiglitz and a co-author, whose name eludes me right now, suggests that the total price tag for W’s wars could reach $3 trillion. Had we devoted even a small fraction of that since 2000 to solving some of our energy and other problems, including global warming, it is hard to imagine what could have been accomplished. This nation’s priorities are thoroughly screwed up so far as I am personally concerned.

I was amazed to see Hillary today join McCain in proposing a goofy “tax holilday” for American motorists this summer, a program with no economic support and a crass attempt to appease the anxiety of at least some voters. Boo to both of them. At least Obama had the courage both to avoid the program and to point out how small the savings would really be for an average American.

The iraq war really is a shame.
What’s more, a one billion dollar investment in clean energy R&D gives us a one billion dollar’s worth of new clean energy technology. Military spending results at its best in something as vague as “political power”, and even for that goal it doesn’t seem to be effective anymore.

Here are some encouraging words from an economist, though Americans may not like to hear them. Jonah Gelbach wrote today that:

“But the fact of the matter is that gas prices should be high. They should be high for the very simple and now very obvious reason that the pressure on the world’s climate needs to be reduced. Our country’s foolish policy of keeping gas prices low while providing implicit (and sometimes explicit) subsidies to the vehicles that get the worst mileage should have ended many years ago. Demand-side pressure on gas prices is finally pushing gas prices into the range they should have been for many years.”

High gas prices will be good news for global warming, and should be welcomed by all who wish to make a dent in the problem. However, as we see with our morons, oops, I mean representatives, in congress, they might want better air and less CO2, but they don’t want a bunch of angry constituents. That is why two out of three presidential candidates are supporting an idiotic proposal to give Americans a “tax holiday” by suspending the gas tax, which is already paltry, for the summer.

Reality may start to set in one of these days–IF we are really going to do anything about global warming, THEN most of us are going to have to make some REAL changes in our lives. A new lightbulb won’t do it!

Um… I hate to break it to the Einsteins at the SF Chronicle, but LASIK surgery IS the green choice. You free yourself and the environment from a lifetime (and landfill) filled with ever changing prescription glasses and disposable contact lenses.

[…] our nation’s outrage, and feel sorry for my compatriots. At the risk of being perceived, once more, as a cold-hearted human being, I decided to take a look at these numbers – from here and here […]